KY Gaming Debate Continues; Bill Introduced

On the eve of the release of racetrack gaming legislation on the call for a special session of the Kentucky General Assembly, the state’s top lawmakers debated the merits of the plan and indicated it won’t be a slam dunk.

Democratic Gov. Steve Beshear, Democratic Speaker of the House Greg Stumbo, and Republican Senate President David Williams appeared June 8 on Kentucky Tonight, the issues program hosted by Bill Goodman on Kentucky Educational Television. The special session begins June 15.

Beshear unveiled his gaming bill June 9, and hopes to address a joint session of the legislature when the special session begins. Beshear said his gaming bill closely resembles that of Stumbo, who earlier this year introduced a measure authorizing video lottery terminals at the state’s racetracks.

The KET program broke no new ground in a debate that has lingered for 15 years. Beshear and Stumbo strongly favor a legislative vote on racetrack VLTs; Williams believes the plan will cause nothing but problems for the state.

“Nothing good can happen in the state of Kentucky if we increase gambling five-fold,” Williams said.

“It’s time we go ahead and address this issue,” Stumbo said. “Kentuckians are already wagering in other states (with casino-style gambling).”

Immediately after Beshear added racetrack VLTs to the special session, Williams released a proposal to raise about $80 million for the horse industry by implementing a 10% tax on lottery tickets, increasing the tax on out-of-state wagering by 1.5%, and returning some taxes to the horse industry. Williams said his plan addresses the problem at hand: purse money for races and funds for breed development.

“The $60-million problem can be taken care of (without gaming),” Williams said. “I think in all fairness we should consider every option.”

Beshear said he wouldn’t add the Williams tax plan to the call for the special session.

“I’ve got concerns about it,” Beshear said. “It raises taxes, and we can’t afford to take any more money out of the general fund. I don’t want to do something until it’s fully vetted.”

Williams during the KET program hammered on the racetracks, saying they “want a monopoly to run a gambling operation and keep 60% of the profits. … Racetracks will get a $400-million profit. Where does that fit in?”

Numbers have been tossed around since the gambling debate began, and economic forecasts vary depending on the company that produces the figures. Beshear's legislation sets the state tax rate at 25% of net terminal revenue the first five years, and 35% after five years.

Also, no matter the net revenue, horse racing purses and breed development would get 14.5% in Stumbo’s bill. So racetracks, at the maximum tax rate, would get close to 50% of net revenue, but they must bear all capital costs associated with developing VLT casinos.

Track also must pay licensing fees of up to $100 million, according to Beshear's bill. The fees, payable in two installments, range from $100 at Turfway Park to $20 million at Ellis Park.

Churchill Downs Inc. president Bob Evans has said the tracks collectively would invest about $1 billion in capital improvement projects to accommodate gaming machines and related amenities.

Beshear on KET didn’t indicate he greatly altered the Stumbo numbers. Racetrack officials have said the licensing fees discussed by some legislators are somewhat high.

“It will be right along the lines of what the speaker worked on,” Beshear said. “There aren’t going to be any surprises in (the legislation).”

Williams mentioned a scenario that has played out in some states: Racetracks focus on the profit-driver—the gaming machines—at the expense of horse racing.

Kentucky racing officials have said they intend to keep racing at the forefront if gaming legislation passes. Bills discussed thus far have only directed gaming revenue to purses, breed development, and non-racing equine breeds, not other programs or regulation associated with the horse racing industry.

Beshear's legislation, however awards $4 million per year to support the Kentucky Horse Racing Commission, which is under-funded. It also states that 0.50% of racetrack revenue must be used for backstretch improvements.

Only nine license for live racing can be granted. There are eight tracks currently operating in Kentucky, so one more license--it has been sought by Quarter Horse interests--is available. Until there is a track that races Quarter Horses as its primary breed, other tracks would contrbute 0.15% of net revenue to a purse fund for Quarter Horses.

None of Goodman’s guests would assess the legislation’s chances of passage during the special session. Stumbo predicted a “spirited debate” but said the “House is poised to act.”